Use Your Calendar & Confidentiality to Protect the Next Big Idea

This article was originally published in the the Greater Bridgeport Bar Association (GBBA) News Brief

In January, the Supreme Court issued a ruling on how the commercial life of a new product can become fatal to the possibility of obtaining a patent on that product. This is a perennial issue for startups, since many do not know whether to keep an invention secret until they file their patent application, and what consequences they face if they don’t.

The Court’s January ruling, Helsinn Healthcare S.A. v. Teva Pharmaceuticals USA, Inc. 586 US _ ( 2019), confirmed the status quo on a basic tenet of U.S. patent law embedded in the patent statute: To be eligible for a patent, an invention must ‘novel’, meaning that it cannot be known to the public before the application is submitted to the patent office, but the inventor (or the inventor’s employer) is permitted a 1-year grace period following sale or public disclosure. Thus, even if an inventor demonstrates the product at a trade show, or in a publicly available YouTube video, or if the inventor commercializes the invention, the inventor may still qualify to apply for a patent, within a limited time. Some foreign countries follow a similar rule; others do not.

The novelty requirement and the grace period exception strike a balance between two fundamental policies: Our notions of free market competition support the idea that once a product is introduced into commerce, competitors should be free to copy it, and it would be unfair to allow an individual to remove an item of commerce from competitive pressures by way of obtaining a patent. As noted by the Helsinn Court, the Supreme Court observed as long ago as 1829 that “it would materially retard the progress of science and the useful arts” to allow an inventor to “sell his invention publicly” and later “take out a patent” and “exclude the public from any farther use than what should be derived under it,” citing Pennock v. Dialogue, 2 Pet. 1, 19 (1829), and, as noted more recently in Pfaff v. Wells Electronics, Inc., 525 U.S. 55, 67 (1998), every patent statute since 1836 has included an ‘on-sale’ bar to patentability. On the other hand, it is helpful to inventors to permit them to test the market for their inventions and perhaps generate some funds, for a limited time (1 year), to justify the expense of pursuing a patent.

A corollary to the on-sale bar is that it applies even if an invention is kept secret while the inventor commercializes it. So, if the invention is a device or machine hidden in a factory, the owner can only try to patent it within one year from putting the invention into commercial use. By the end of the grace period, the inventor must choose between trying to keep the invention secret or seeking patent protection (under which the invention is revealed). At least, that was the situation until 2011, when Congress amended the relevant statute under the America Invents Act (AIA).

Helsinn Healthcare was trying to enforce a patent filed more than a year after it commercialized the invention (the specific dosing of Aloxi (palonosetron hydrochloride) as an anti-nausea agent). The company was relying on a sales contract which obligated the buyer not to publicize the invention and argued that under the AIA, the ‘on sale’ bar no longer applied against an invention that is sold without being revealed, even if the fact of the sale was public knowledge. The New Jersey District Court agreed, but the Federal Circuit read the AIA amendment as altering the prior on-sale rule to say that the on-sale bar no longer applied to secret sales. Rather, according to the Federal Circuit, the AIA exempted secret sales from the on-sale bar, but not sales transactions done publicly, even if details of the invention being purchased are not publicly disclosed. Therefore, since Helsinn’s sales of its product were public knowledge, the AIA on-sale bar applied even if the invention had not been publicly disclosed, and the Helsinn patent was invalid.

Helsinn appealed to the Supreme Court to challenge the Federal Circuit’s ruling, but the Supreme Court affirmed the Federal Circuit’s view on the validity of the patent. However, the Court viewed the AIA differently from the Federal Circuit, saying that despite the amendment to the statute, Congress did not alter the meaning of “on sale” when it enacted the AIA. Therefore, even under the AIA, a commercial sale to a third party who is required to keep the invention confidential may place the invention “on sale” regardless of whether the invention or the fact of the sale are publicly known, just as the law required before the AIA.

Here are the key take-aways:

The best practice is to keep the invention secret until the patent application is on file.

If it is necessary to disclose the invention to others apart from selling it (e.g., to consultants, potential customers, etc.) before filing, do so privately, i.e., subject to a written non-disclosure agreement (NDA). This protects patent eligibility in countries that do not have a grace period and avoids triggering the 1-year grace period from a public disclosure in the U.S. An NDA typically also provides protection against authorized commercialization of the invention by the other party.

If circumstances dictate that the invention be commercialized before the patent application is filed, do so under an NDA, as this can prevent forfeiture of patent eligibility in some foreign countries. Whether or not an NDA is in place, it is essential to mark the calendar for a 1-year deadline to file the U.S. patent application.

Finally, if the invention is disclosed publicly (whether by way of demonstration, publication, etc.) before the patent application is filed, mark the calendar for a 1-year deadline to file the patent application, and be aware that there was an immediate forfeiture of patent eligibility in some foreign countries.

This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. The opinions expressed in this article are those of the author only and are not necessarily shared by Dilworth IP, its other attorneys, agents, or staff, or its clients.

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